Matching with Externalities: the Role of Prudence and Social Connectedness in Stability

17 Pages Posted: 14 Jan 2019 Last revised: 31 Jul 2020

See all articles by Milton dos Santos Braitt

Milton dos Santos Braitt

Universidade Federal de Santa Catarina (UFSC) - Department of Mathematics

Juan Pablo Torres-Martínez

Department of Economics, University of Chile

Date Written: July 31, 2020

Abstract

In matching problems with externalities, prudence measures the importance given to potential reactions when evaluating a deviation; social connectedness, on the other hand, measures the capacity to react to such deviations. Intuitively, a matching problem should be more likely to have a stable solution when these attributes are high. Assuming that externalities are arbitrary and preferences are random, the role of prudence and social connectedness in stability is studied. Among other results, it is shown that asymptotic stability---a property that never holds in the absence of externalities---is achieved even in situations where social connectedness is low and prudence vanishes. However, those who ignore the reactions of other individuals have a destabilizing effect on society: the probability of a matching being stable converges to zero as the number of myopic agents increases, regardless of the percentage of the population they represent.

Keywords: Matching Markets, Externalities, Random Preferences, Stability

JEL Classification: D62, C78

Suggested Citation

Braitt, Milton dos Santos and Torres-Martínez, Juan Pablo, Matching with Externalities: the Role of Prudence and Social Connectedness in Stability (July 31, 2020). Available at SSRN: https://ssrn.com/abstract=3309768 or http://dx.doi.org/10.2139/ssrn.3309768

Milton dos Santos Braitt

Universidade Federal de Santa Catarina (UFSC) - Department of Mathematics ( email )

Brazil

Juan Pablo Torres-Martínez (Contact Author)

Department of Economics, University of Chile ( email )

HOME PAGE: http://www.econ.uchile.cl/es/academico/jutorres

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
60
Abstract Views
464
rank
422,668
PlumX Metrics